Financial Statement Analysis Assignment

Horizontal Analysis of the Qantas Airways Limited
In this section of the report horizontal analysis of the Qantas Airways has been done for
years 2014, 2015 and 2016. Horizontal analysis of income statement and cash flow statement has
been done for all the three years. In horizontal analysis trend in the years is measured as the
change in the line items of the financial statements and it is also represented as the % change.
The positive change in income items reflects positive change in the financial values and vice
versa. Similarly increase in cash flow from the operating activity reflects good financial position
of the company whereas increase in cash flow used in the investing activity reflects negative
financial position of the company.
Below are the horizontal analyses of the Qantas Airways Limited for year 2014, 2015 and
2016
Income Statement
Horizontal Analysis of Income Statement of Qantas Airways Limited
Amount in $ million
ASX
Code Items 2014 2015 2014-15 2016 2015-16
QAN
REVENUE
AND OTHER
INCOME
QAN
Net passenger
revenue
$
13,242.00
$
13,604.00 2.73%
$
13,961.00 5.43%
QAN
Net freight
revenue
$
955.00
$
936.00 -1.99%
$
850.00 -10.99%
QAN Other
$
1,155.00
$
1,276.00 10.48%
$
1,389.00 20.26%
QAN
Revenue and
other income
$
15,352.00
$
15,816.00 3.02%
$
16,200.00 5.52%
QAN
QAN
EXPENDITUR
E
QAN
Manpower and
staff related
$
3,717.00
$
3,604.00 -3.04%
$
3,849.00 3.55%
QAN Fuel
$
4,461.00
$
3,937.00 -11.75%
$
3,250.00 -27.15%
QAN
Aircraft
operating
variable
$
3,142.00
$
3,206.00 2.04%
$
3,362.00 7.00%
QAN
Depreciation and
amortisation
$
1,422.00
$
1,096.00 -22.93%
$
1,224.00 -13.92%
QAN
Impairment of
specific assets
$
387.00
QAN Impairment of $

cash generating
unit 2,560.00
QAN
Non-cancellable
aircraft operating
lease rentals
$
520.00
$
495.00 -4.81%
$
461.00 -11.35%
QAN
Share of net loss
of investments
accounted for
under the equity
method
$
66.00
$
40.00 -39.39%
QAN Other
$
2,849.00
$
2,390.00 -16.11%
$
2,411.00 -15.37%
QAN Expenditure
$
19,124.00
$
14,768.00 -22.78%
$
14,557.00 -23.88%
QAN
Statutory
(loss)/profit
before income
tax expense and
net finance costs
$
(3,772.00)
$
1,048.00
-
127.78
%
$
1,643.00
-
143.56
%
QAN
QAN Finance income
$
82.00
$
90.00 9.76%
$
65.00 -20.73%
QAN Finance costs
$
(286.00)
$
(349.00) 22.03%
$
(284.00) -0.70%
QAN
Net finance
costs
$
(204.00)
$
(259.00) 26.96%
$
(219.00) 7.35%
QAN
QAN
Statutory
(loss)/profit
before income
tax expense
$
(3,976.00)
$
789.00
-
119.84%
$
1,424.00
-
135.81%
QAN
Income tax
benefit/(expense)
$
1,133.00
$
(229.00)
-
120.21%
$
(395.00)
-
134.86%
QAN
Statutory
(loss)/profit for
the year
$
(2,843.00)
$
560.00
-
119.70
%
$
1,029.00
-
136.19
%
The Qantas Airways financial performance in the last two years has significantly
improved as illustrated by its horizontal analysis. The revenue of the company has shown an
increase from 3.02% to 5.52% in the last two financial years of 2015-2016 of the airways. The
increase in revenue of the airways was mainly from other business operations as depicted from
the trend analysis. The expenditure of the airways is also reportedly decreasing from the year
2014-2016 due to significant reduction in its expenses in fuel and other significant expenses. It
has also been analyzed from the trend analysis that airways has reported statutory loss in the year
2014 but has recorded an increase in its profit before income tax and expenses in the last two

financial years. Besides, the increase in profit after tax of the airways in the last two financial
years report indicates that it has improved in its financial position with significant reduction in its
operational expenses.

Cash Flow Statement
Horizontal Analysis of Cash Statement of Qantas Airways Limited
Amount in $ million
ASX
Code Items 2014 2015 2014-15 2016 2015-16
QAN
CASH FLOWS
FROM
OPERATING
ACTIVITIES
QAN
Cash receipts
from customers
$
16,720.00
$
17,239.00 3.10%
$
17,723.00 6.00%
QAN
Cash payments to
suppliers and
employees
(excluding cash
payments to
employees for
redundancies)
$
(15,288.0
0)
$
(14,747.0
0) -3.54%
$
(14,600.0
0) -4.50%
QAN
Cash generated
from operations
$
1,432.00
$
2,492.00 74.02%
$
3,123.00 118.09%
QAN
Cash payments to
employees for
redundancies and
related costs
$
(185.00)
$
(251.00) 35.68%
$
(90.00) -51.35%
QAN
Cash payments to
employees for
wage freeze bonus
$
-
$
-
$
(53.00)
QAN Interest received
$
74.00
$
85.00 14.86%
$
64.00 -13.51%
QAN Interest paid
$
(254.00)
$
(281.00) 10.63%
$
(227.00) -10.63%
QAN
Dividends
received from
investments
accounted for
under the equity
method
$
4.00
$
5.00 25.00%
$
4.00 0.00%
QAN Income taxes paid
$
2.00
$
(2.00)
-
200.00%
$
(2.00)
-
200.00%
QAN
Net cash from
operating
activities
$
1,069.00
$
2,048.00 91.58%
$
2,819.00 163.70%
QAN

QAN
CASH FLOWS
FROM
INVESTING
ACTIVITIES
QAN
Payments for
property, plant
and equipment
and intangible
assets
$
(1,161.00)
$
(1,359.00) 17.05%
$
(1,618.00) 39.36%
QAN
Interest paid and
capitalised on
qualifying assets
$
(34.00)
$
(17.00) -50.00%
$
(24.00) -29.41%
QAN
Payments for the
acquisition of
controlled entities,
net of cash
acquired
$
-
$
(7.00)
$
-
QAN
Payments for
investments
accounted for
under the equity
method
$
(72.00)
$
(58.00) -19.44%
$
(39.00) -45.83%
QAN
Net
receipts/(payment
s) for aircraft
assigned to
investments
accounted for
under the equity
method
$
8.00
$
266.00
3225.00
%
$
-
-
100.00%
QAN
Proceeds from
disposal of
property, plant
and equipment
$
141.00
$
194.00 37.59%
$
509.00 260.99%
QAN
Proceeds from
disposal of
controlled entities,
net of cash
disposed
$
70.00
$
28.00 -60.00%
$
-
-
100.00%

QAN
Net (loans
to)/proceeds from
repayment of
loans from
investments
accounted for
under the equity
method
$
(21.00)
$
9.00
-
142.86%
$
27.00
-
228.57%
QAN
Net cash used in
investing
activities
$
(1,069.00)
$
(944.00) -11.69%
$
(1,145.00) 7.11%
QAN
Aircraft operating
lease refinancing
$
-
$
-
$
(778.00)
QAN
Net cash used in
investing
activities
$
(1,069.00)
$
(944.00) -11.69%
$
(1,923.00) 79.89%
QAN
QAN
CASH FLOWS
FROM
FINANCING
ACTIVITIES
QAN
Payments for
capital return
$
-
$
-
$
(505.00)
QAN
Payments for
shares bought
back
$
(63.00)
$
-
-
100.00%
$
(500.00) 693.65%
QAN
Payments for
treasury shares
$
-
$
(1.00)
$
(75.00)
QAN
Proceeds from
borrowings
$
717.00
$
796.00 11.02%
$
-
-
100.00%
QAN
Repayments of
borrowings
$
(1,027.00)
$
(2,276.00) 121.62%
$
(807.00) -21.42%
QAN
Proceeds from
sale and finance
leaseback of non-
current assets
$
564.00
$
275.00 -51.24%
$
-
-
100.00%
QAN
Net payments for
aircraft security
deposits and
hedges related to
debt
$
(17.00)
$
(8.00) -52.94%
$
62.00
-
464.71%
QAN
Dividends paid to
non-controlling
interests
$
(1.00)
$
(4.00) 300.00%
$
-
-
100.00%

QAN
Net cash
provided
by/(used in)
financing
activities
$
173.00
$
(1,218.00)
-
804.05%
$
(1,825.00)
-
1154.91
%
QAN
QAN
Net
increase/(decreas
e) in cash and
cash equivalents
held
$
173.00
$
(114.00)
-
165.90%
$
(929.00)
-
636.99%
QAN
Cash and cash
equivalents at
the beginning of
the year
$
2,829.00
$
3,001.00 6.08%
$
2,908.00 2.79%
QAN
Effects of
exchange rate
changes on cash
and cash
equivalents
$
(1.00)
$
21.00
-
2200.00
%
$
1.00
-
200.00%
QAN
Cash and cash
equivalents at
the end of the
year
$
3,001.00
$
2,908.00 -3.10%
$
1,980.00 -34.02%
The net cash flow situation of the airways has significantly reduced in the financial years
of 2014-2016 as depicted from its horizontal analysis. The operating cash flow has reported an
increase from 74% to 118% in the last two financial years. However, the use of cash in investing
activities of the airways has decreased in the last two financial years that has resulted in net
decrease in the cash equivalents of the airways in the last two financial years. However, the
negative cash flow from investing activities has offset the positive cash flow from the operating
activities resulting in negative cash equivalents of the airways over the past few financial years.
Below are the horizontal analyses of the Virgin Airways Limited for year 2014, 2015 and
2016
Income Statement
Horizontal Analysis of Income Statement of Virgin Airways Limited
Amount in $ million
ASX
Code Items 2014 2015
2014-
15 2016
2015-
16
VAH
Revenue and
income

VAH
Airline
passenger
revenue
$
4,286.80
$
3,999.00 -6.71%
$
4,194.80 -2.15%
VAH
Other ancillary
revenue
$
-
$
707.00
$
790.90
VAH Other income
$
16.40
$
17.40 6.10%
$
18.20 10.98%
VAH
Net foreign
exchange gains
$
3.40
$
25.80
658.82
%
$
17.10
402.94
%
VAH
Revenue and
income
$
4,306.60
$
4,749.20 10.28%
$
5,021.00 16.59%
VAH
VAH
Operating
expenditure
VAH
Aircraft
operating lease
expenses
$
(274.20)
$
(290.00) 5.76%
$
(360.60) 31.51%
VAH
Airport
charges,
navigation and
station
operations
$
(792.30)
$
(917.00) 15.74%
$
(984.10) 24.21%
VAH
Contract and
other
maintenance
expenses
$
(189.00)
$
(155.20)
-
17.88%
$
(182.00) -3.70%
VAH
Commissions
and other
marketing and
reservations
expenses
$
(330.60)
$
(363.10) 9.83%
$
(408.20) 23.47%
VAH Fuel and oil
$
(1,208.70
)
$
(1,191.60
) -1.41%
$
(1,018.80
)
-
15.71%
VAH
Labour and
staff related
expenses
$
(1,041.40
)
$
(1,118.80
) 7.43%
$
(1,157.80
) 11.18%
VAH
Impairment
losses on assets
classified as
held for sale
$
-
$
-
$
(107.30)

VAH
Impairment
losses on other
assets
$
(56.90)
$
-
-
100.00
%
$
(118.10)
107.56
%
VAH
Onerous
contract
expenses
$
-
$
-
$
(100.20)
VAH
Other expenses
from ordinary
activities
$
(433.60)
$
(464.20) 7.06%
$
(531.60) 22.60%
VAH
Depreciation
and
amortisation
$
(267.80)
$
(275.40) 2.84%
$
(282.20) 5.38%
VAH
Ineffective cash
flow hedges
and non-
designated
derivatives
(losses)/gains
$
(41.10)
$
(27.40)
-
33.33%
$
(27.80)
-
32.36%
VAH
Net operating
expenses
$
(4,635.60
)
$
(4,802.70
) 3.60%
$
(5,278.70
) 13.87%
VAH
Share of net
(losses)/profits
of equity
accounted
investees
$
(48.70)
$
(16.60)
-
65.91%
$
0.70
-
101.44
%
VAH
Loss before
related income
tax benefit and
net finance
costs
$
(377.70)
$
(70.10)
-
81.44%
$
(257.00)
-
31.96%
VAH
VAH Finance income
$
13.30
$
39.70
198.50
%
$
11.40
-
14.29%
VAH Finance costs
$
(119.70)
$
(132.90) 11.03%
$
(181.00) 51.21%
VAH
Net finance
costs
$
(106.40)
$
(93.20)
-
12.41%
$
(169.60) 59.40%
VAH

VAH
Loss before
income tax
benefit
$
(484.10)
$
(163.30)
-
66.27%
$
(426.60)
-
11.88%
VAH
Income tax
benefit/(expens
e)
$
128.50
$
69.50
-
45.91%
$
201.90 57.12%
VAH
Net loss
attributable to
the owners of
Virgin
Australia
Holdings
Limited
$
(355.60)
$
(93.80)
-
73.62%
$
(224.70)
-
36.81%
As depicted form the trend analysis, the financial performance of Virgin Airlines is not
good in the last few financial years from 2014-2016. The revenue of the airlines from 2014-2016
has reported an increase from 10.28% to 16.59% mainly due to increasing revenue realized by it
from the other operational activities. However, the increase in the operating income is offset by
the large increase in the expenditure of the airlines over the last financial years of 2014-2016
from 3.6% to 13.87%. The increase in the finance costs of airline over the last two financial
years has reported a significant loss for the airline. The Virgin airlines have reported a net loss
due to increase in its operational expenditures over its revenues realized in the last two financial
years.
Cash Flow Statement
Horizontal Analysis of Cash Statement of Virgin Airways Limited
Amount in $ million
ASX
Code Items 2014 2015 2014-15 2016 2015-16
VAH
Cash flows from
operating
activities
VAH
Cash receipts
from customers
$
4,781.70
$
5,176.70 8.26%
$
5,567.40 16.43%
VAH
Cash paid to
suppliers and
employees
$
(4,615.6
0)
$
(4,785.6
0) 3.68%
$
(5,118.6
0) 10.90%
VAH
Cash generated
from operating
activities
$
166.10
$
391.10 135.46%
$
448.80 170.20%

VAH
Cash paid for
business and
capital restructure
costs
$
(108.60)
$
(82.50) -24.03%
$
(110.00) 1.29%
VAH
Finance costs
paid
$
(76.70)
$
(109.30) 42.50%
$
(151.70) 97.78%
VAH
Finance income
received
$
11.50
$
18.80 63.48%
$
11.40 -0.87%
VAH
Net cash (used
in)/from
operating
activities
$
(7.70)
$
218.10
-
2932.47
%
$
198.50
-
2677.92
%
VAH
VAH
Cash flows from
investing
activities
VAH
Acquisition of
property, plant
and equipment
$
(360.20)
$
(577.30) 60.27%
$
(713.40) 98.06%
VAH
Proceeds on
disposal of
property, plant
and equipment
$
376.80
$
147.40 -60.88%
$
418.40 11.04%
VAH
Acquisition of
subsidiary, net of
cash acquired
$
-
$
3.20
$
(2.30)
VAH
Acquisition of
intangible assets
$
(72.40)
$
(60.30) -16.71%
$
(46.80) -35.36%
VAH
Acquisition of
interest in joint
venture
$
(35.00)
$
- -100.00%
-
100.00%
VAH
Advances of
loans to joint
venture
$
(83.40)
$
(23.80) -71.46%
-
100.00%
VAH
Repayments of
loans to joint
venture
$
35.10
$
8.20 -76.64%
-
100.00%
VAH
Payments for
other deposits
$
(55.20)
$
(72.90) 32.07%
$
(49.10) -11.05%
VAH
Proceeds from
other deposits
$
19.60
$
2.60 -86.73%
$
4.20 -78.57%

VAH
Net cash used in
investing
activities
$
(174.70)
$
(572.90) 227.93%
$
(389.00) 122.67%
VAH
VAH
Cash flows from
financing
activities
VAH
Proceeds from
borrowings
$
1,041.40
$
910.70 -12.55%
$
875.80 -15.90%
VAH
Repayment of
borrowings
$
(975.80)
$
(525.40) -46.16%
$
(713.60) -26.87%
VAH
Payments of
transaction costs
related to
borrowings
$
(28.30)
$
(34.90) 23.32%
$
(10.10) -64.31%
VAH
Redemption of
convertible notes
$
-
$
(74.70)
VAH
Net proceeds
from share issue
$
348.50
$
- -100.00%
$
151.90 -56.41%
VAH
Equity
distributions paid
to non-controlling
interests
$
-
$
(17.80)
$
(41.90)
VAH
Proceeds from
loans from
associate
$
1.80
$
336.00
18566.67
%
$
1.10 -38.89%
VAH
Repayments of
loans from
associate
$
(7.30)
$
(4.20) -42.47%
-
100.00%
VAH
Payments of
transaction costs
relating to non-
controlling
interests
$
(8.80)
VAH
Net cash from
financing
activities
$
380.30
$
580.90 52.75%
$
263.20 -30.79%
VAH
VAH
Net
increase/(decrea
se) in cash and
cash equivalents
held
$
197.90
$
226.10 14.25%
$
72.70 -63.26%

VAH
Cash and cash
equivalents at
the beginning of
the year
$
580.50
$
783.80 35.02%
$
1,028.50 77.17%
VAH
Effects of
exchange rate
changes on cash
and cash
equivalents
$
5.40
$
18.60 244.44%
$
22.60 318.52%
VAH
Cash and cash
equivalents at
the end of the
year
$
783.80
$
1,028.50 31.22%
$
1,123.80 43.38%
The cash flow position of the Virgin Airlines has improved in the last tow financial years
as indicated form the horizontal analysis. The cash flow of the airline from operating activities
has significantly increased from 135.46% to 170.20%. Also, the net cash used in investing
activities has also reported a decrease from 227% to 122% in the last two financial years.
Therefore, the increase of financial cash flow from operating activities and decrease in investing
activities made the net cash flow increased in the year 2016.
Recommendations to the Investors
The horizontal analysis of the Qantas Airways has indicated that it its income from
FY2014 to FY2016 has improved with significant reduction in its operating expenses. The cash
statement analysis of the airways depicts that is ability to generate cash flow is significantly
decreasing due to use of large cash in the investing activities. Thus, it can be said that company
is using more cash by itself in comparison to that realized form its business operations. However,
the profitability of the airways is improving indicating that it is realizing an increase in the
revenue by reducing its operational expenditure. Therefore, the investors are recommended to
invest in the company due to improve in its financial profitability and operating cash flows.
On the other hand, it can be said from the analysis of Virgin Airlines that it is having
poor financial performance despite of maintaining a good cash flow position from FY2014 to
FY2016. This is due to the increase in the operating expenses of the airlines that is much greater
than the cash flows realized form its operational activities. As such, the investors are
recommended to sell out its shares as its financial profitability is gradually declining.